The Virtuous TriangleMay 2019
All development vehicles are geared towards generating a financial return for their investors. However, it is the long-term, income-generating characteristics of the BTR model that sets the sector apart from its counterparts. The long-term nature of the business results in healthier and more equitable relationships between investors and their customers. What’s more, these benefits reach far beyond the intimate supplier/consumer relationship by enhancing the collective built environment through to the very nature in which buildings are produced.
At Geraghty Taylor we refer to this as the ‘BTR virtuous triangle’.
Customer Focus starts the process and quality sits at its heart
First, the mutual dependency between provider and consumer is where the balance begins. BTR providers are much more dependent on the ongoing satisfaction of their residents, who are seen as customers and far removed from the vulnerable ‘tenant’ that might have previously been subject to the whims of one-off Private Landlord’s. Get your BTR offer right, and continue to get it right and you will retain your customers. Your customers will also speak for you: via friendship networks and social media, when you are trying to fill your apartments. Get the quality of design and efficiency of your operation right and you will continue to achieve your projected Net Operating Income (NOI) over the course of your investment. Simply put, if you undervalue your customers or low ball on quality of product or service, the outcomes are entirely predictable.
So, at the apex of our virtuous triangle we have customers whose continued custom is inextricably bound up in the success of a BTR initiative – as we say, happy people will give – and continue to give - you money!
How does this help the housing crisis?
BTR is a nascent segment of the residential market and over the 5 years that BTR has been around it has produced only 30,000 completions. A figure which pales given the targeted national housing need of circa 300,000 per year. However, institutional investors are now persuaded that BTR is a bankable investment vehicle and an estimated £6 billion is already committed, with a further 110,000 units under construction or in planning. Given that a typical BTR project only begins to wash its face at around 150 units, the ingredients for the delivery of a meaningful contribution towards addressing the UK’s housing shortage is there for all to see – more good quality homes for the UK’s population from a previously unanticipated investment stream.
This takes us to the second point of our virtuous triangle: speed of delivery.
Unlike homes that are constructed for the sales market, where there is an incentive to balance the supply/demand equation in favour of the creation of scarcity to maintain pricing aspirations, BTR is about speed of delivery. As soon as the button is pressed on a BTR project the clock starts ticking and the race is on until rent stabilisation is achieved. Indeed, BTR operators regard the construction process as a mere bump in the road in the life of their investment. The sooner a development can be completed, the sooner the ‘money machine’ starts to earn its keep!
Also, the benefits of completing projects that offer a substantial critical mass are recognised by developers and towns and cities alike. BTR, with its forensic focus on customer experience is the ideal catalyst for regeneration projects – bringing early-stage community building energy and place-making attributes to their locations far quicker than their for-sale counterparts. For this reason, BTR initiatives are now being seen as vital components in large scale regeneration projects across the country.
The ‘need for speed’ takes us to the third point of our triangle: innovation
The construction industry is renowned for its sluggish adoption of innovation. We hear regular talk of how cyclical downturns and a dwindling labour force get in the way of creating sustainable pipelines - business that could offset the investment required to take advantage of truly innovative delivery techniques and technology. This is all changing and BTR is playing no small part. The ambitious delivery projections of its participant’s means old delivery methods are being completely re-evaluated. The elimination of risk is a key objective of every construction project, but never before have the drivers for the advantages gained from forcing out risk, dovetailed so eloquently with the drivers for quality and, most importantly, the need for rapid delivery. BTR business plans are predicated on scale. How do you deliver scale quickly along with reliable quality and cost? One only need look at the automotive and manufacturing industries – and there is not a man with a cement trowel high on a rain-swept scaffold in sight!
L&G has already taken the plunge by investing in their own factories to facilitate the delivery of their housing product. Geraghty Taylor is part of a consortium, alongside Cogent Consulting and Peter Dann, that is at the prototyping stage in the creation of modular apartments for a US client who have targeted the completion of 10,000 new homes over the next 5 years. Far from feared identical cookie cutter boxes, these approaches offer high quality, factory-made homes delivered at speed and possessing all the individuality and context specificity as any scheme built in situ.
From a production perspective, such initiatives are only possible with effective collaboration between professional and construction teams, coupled with the application of technology as is so robustly argued for in the Farmer Review, Modernise or Die - the unflinching analysis of the construction industry and the changes required to safeguard its future.
If nurtured carefully, BTR has the potential to positively benefit multiple stakeholders on multiple fronts: investors are incentivised to play a long term game and still enjoy the financial returns that will justify their efforts; towns and cities have a new and effective catalyst for the creation of high-quality people-centred built environments; the construction industry has a vehicle through which the fruits of investment in innovation and modernisation can be clearly seen and perhaps most importantly of all Britain’s population will have a housing alternative that carefully listens and rapidly attends to their needs…sooner rather than later.
#BTR #BuildtoRent #Brand #Brandbeforebuilding